Leaders gather in Europe

Thursday

Jun 28, 2012 at 12:01 AMJun 28, 2012 at 12:10 PM

BRUSSELS (AP) — Economic growth was the mantra among European leaders as they began a crucial summit today, though expectations of a breakthrough on the explosive issue of pooling government debt appeared to have fallen by the wayside.

European Commissioner for Economic Affairs Olli Rehn said he expected leaders would agree on new growth measures as well as on action to reduce borrowing rates for Spain and Italy, which are approaching unmanageable levels.

"I expect that there will be a decision on a further step toward rebuilding the economic and monetary union," Rehn said shortly before the summit began. "We also need concrete decisions on a short-term stabilization of financial markets, especially sovereign debt markets."

But German Chancellor Angela Merkel, who has resolutely opposed the issuing of mutual debt — known as eurobonds — has only stiffened her position.

Many leaders have backed the idea of eurobonds because they would spread debt risk, lowering indebted countries' borrowing rates. But Merkel has been reluctant to expose her country to new costs and is concerned eurobonds would ease the pressure on countries such as Greece and Spain to reform their economies.

"I think we should stop talking about eurobonds now because, with the German government's 'no,' with this definitive 'no' from Mrs. Merkel, eurobonds are now a nonissue," the president of the European Parliament, Martin Schulz, said today.

"I personally continue to see it as a good solution, a sensible one, but there is no sense in conducting theoretical debates when the house is on fire," Schulz told Germany's ZDF television.

While pressure on Merkel has been building, she is not alone in her opposition to have EU countries accrue joint debt. Swedish Prime Minister Fredrik Reinfelt said today that what was needed was not mutual debt but more financial reforms by Europe's troubled countries — measures he said would make them more competitive.

"We only solve Europe's problems by respecting past agreements and by making markets function better. The only way out of this crisis is to help southern European nations, provided they accept responsibility and strict criteria," Rutte said.

Investors are looking for signs of a clear strategy to deal with the debt crisis. They are not hopeful, though, and sold off stocks across Europe this morning as European leaders prepared for the summit.

"The good news is that this time around expectations are very low; the bad news is that the main players seem to be diametrically opposed when it comes to a strategy for ending the crisis," said Gary Jenkins, managing director of Swordfish Research, a London-based consulting firm.

The leaders of Italy, France and Spain have been pressing Germany to agree to share debts before markets push the 17-nation Eurozone closer to collapse. The EU's top officials and the International Monetary Fund have argued the same.

But Merkel isn't budging. She has argued repeatedly that short-term solutions such as pooled debt or a more active European Central Bank are useless unless some form of central control is established over national budgets.

Even if leaders of all 26 other EU nations line up against Merkel, she cannot bend very far.

She needs the German Parliament to approve the eurozone's permanent rescue fund, the European Stability Mechanism, and a European budget-discipline pact, both expected to happen tomorrow. And many measures floated as possible solutions could require changes to Germany's constitution.

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